Disrepair: Buyer Beware
Author: Simon Pestell
Applies to: England and Wales
A tenant who signs up to a lease of commercial property that is suffering from inherent defects or is in a state of disrepair can find they have taken on more than they bargained for.
Commercial tenants need to be aware of what they are signing up for when entering into a lease in terms of the repair obligation. Leases will often require tenants to keep the property in repair, but such an obligation carries with it an implied obligation to put the property in repair. The principle of 'buyer beware' applies to commercial lettings, so a prudent tenant should always consider having a full survey undertaken to identify any existing issues.
A key point to bear in mind is that a standard repair obligation can require a tenant to remedy inherent defects, which will often come as a shock if any such defects come to light. As an example, if the concrete floor of the premises begins to crack open then the tenant may be liable to repair the cracks and, possibly, the underlying cause of the cracking. Depending on the terms of the lease, the tenant could be liable regardless of whether the cause is subsidence, defective foundations or a fault within the concrete of the floor slab itself.
Even if it is possible to argue that the tenant should not be liable because the necessary remedial works go beyond the meaning of repair, it does not necessarily mean that the landlord can be required to remedy the defect. This potential gap in the parties' obligations can lead to disputes and have a significant impact on the operation of the tenant's business if the defects are serious.
Prospective tenants also need to be especially cautious when taking over a property from an existing tenant by way of a lease assignment. Unless otherwise agreed, the new tenant will inherit liability to remedy any existing disrepair at the property.
Finally, tenants should carefully check any service charge provisions as, even if the tenant is not directly liable under the lease repair obligations, it could end up paying for them anyway if the lease allows the landlord to recover the cost of remedying defects.
If the above issues are considered in advance of the grant of a new lease then it may be possible to agree a schedule of condition with the landlord in order to limit the repair obligation and/or to expressly require the landlord to remedy inherent defects (without being able to charge back the cost to the tenant). In the case of assignments, it may be possible to split the liability with the outgoing tenant or agree a cash payment to deal with any existing disrepair. At the very least tenants need to understand the full extent of their obligations in order to avoid any nasty surprises once they are in occupation.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.